On Monday I wrote that the U.S. Dollar Index:
"...is now approaching a strong resistance area around 91. If the dollar can clear that resistance, it will support the idea that a new longer-term cycle started with the low of 89 on March 26, and that could be very bullish."
It looks like the dollar is making a clear break above 91 and therefore could be entering a new bullish phase, at least in the short-term. To avert this, the greenback would have to reverse back down under 91 (and even 90.5) soon. There is still some resistance for the dollar up to 91.5, and then at 92 so a reversal is possible; however, we are not in a reversal zone for any market for another two weeks, and the next reversal zone specifically for currencies is in the third week of May. This is supporting the idea of a bullish dollar now.
A bullish dollar is not good news for precious metals. Although it is possible at times for the dollar and gold and silver prices to rise together, that normally is not the case. Today's dollar rally is pushing gold and silver lower, and both metals are breaking important support levels. Unless the dollar reverses back down soon, the short-term and maybe even medium-term trend in gold and silver could turn bearish. If gold breaks below $1304 it could move as low as $1250 or possibly even lower. Because silver most likely started a new medium-term cycle on March 20, we want to pay special attention to how low its price goes. If silver breaks below the start of its cycle (i.e. $16.13), that would be a very bearish signal and would suggest prices for both metals could be headed down for the next few months. On the sidelines of gold and silver.
We are seeing a relief rally in the broad stock market today after a five day plunge that began last Thursday. As I stated in Monday's blog, there is a small chance that all three market indices (DOW, S&P 500, and NASDAQ) started new cycles with their lows on April 2. If that is the case, yesterday's lows could be the end of a small corrective dip, and this market could be set to rally strongly now. I don't think that will happen, but we should be ready if it does. The DOW and S&P 500 breaking above their highs from last week would be a sign it is happening so we can set a stop loss for our short positions on a break above those highs. That would be 24,859 in the DOW and 2,718 in the S&P 500. If we do trigger those stops, we will break even on the trade as we sold short at those highs on April 18; however, I think it is more likely this market will continue down at least into the second week of May.
Holding my short position in the broad stock market.
The high so far in the current medium-term cycle for crude oil was $69.55 (June contract chart) on April 19. This market looks bullish so I think prices could go higher over the next several weeks. There are two reversal zones for crude coming up in May - one centered around May 11 and the other around May 29. Either one of these could turn out to be the final high for the current medium-term cycle. In the meantime, however, we can see that the April 19 high was in a major reversal zone for crude, and prices have been taking a corrective dip. If prices fall to the $64 area, it may be a good place to buy (especially if that happens close to May 11). Otherwise, we will be watching for the final cycle high some time in May for a good place to sell short (possibly in the $72 - $75 area). On the sidelines of crude oil for now.